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Weekly Gold and Silver Market Recap for May 18, 2012

The week started in the same fashion as it ended last week. Gold prices were continually being affected by the strong U.S. dollar and the economic crisis in the Europe. The eurozone’s economic and political crises haves been affecting global markets during the past week. “Worries about Europe are pushing people to the dollar,” said Frank McGhee at Integrated Brokerage Services LLC. Even in the face of adversity many experts saw the long term picture; “On a long-term basis, Gold has a place in most investment portfolios for two reasons: We foresee demand returning from emerging markets, and more and more investors buy Gold as a hedge against inflation,” said Sanjeev Sardana, financial adviser and chief executive officer of Bluepointe Capital Management. On Thursday the market responded with the first upswing of the week. “We have seen more interest come through from physical buyers … because prices have come down substantially,” said Afshin Nabavi at MKS Finance. The trend has continued to Friday, looking to end the week on a positive note. In a note to investors, UBS wrote, “Yesterday, Gold defied a stronger dollar, weaker equities, and another raft of negative EU headlines (to rise). It felt like the Gold market of yesteryears.”

Greece tensions in the eurozone high:

The politics in Greece have taken its toll on the economy in Europe and beyond. Economists at Citi have predicted the likelihood of Greece leaving the euro at between 50 and 75 percent. Billionaire investor George Soros said, “The euro is seriously at risk. The consequences of a non-controlled implosion risks to be disastrous.” As the week moved on the situation in Europe seemed to keep going downhill. London-based economist Marchel Alexandrovich said, “The euro breakup story is gathering steam again. … If Greece were to ever exit the euro, no amount of reassuring comments will convince investors that other countries won’t soon follow.” The Greek public has taken action and so has the central banks in the area. Greek citizens are pulling their money out of banks, as well. The ECB only does business with solvent banks. According to an unidentified source, “As recapitalization wasn’t in place, the ECB stopped monetary policy operation. … Once the recapitalization process is finalized, and we expect this to be finalized soon, the banks will regain access to standard Eurosystem refinancing operations. The ECB/Eurosystem (of eurozone central banks) continues to support Greek banks.” Plans are being made in the event of a Greek exit from the Euro. In an interview, European Union trade commissioner Karel De Gucht confirmed those feelings when he said, “A year and a half ago, there maybe was a risk of a domino effect. … But today there are, in the European Central Bank as well as in the commission, services working on emergency scenarios if Greece shouldn’t make it.

U.S.A. keeps moving in the right direction:

With all the negative international news the United States economy is slowly improving with little fanfare. Something happened in the United States for the first time since 2008. In April, the Treasury Department recorded a $59 billion surplus. With retail sales up, lower gasoline prices and the fall of the euro, the U.S.A. dollar is strong. The economy keeps rolling along,” said Chris Rupkey, chief financial economist at Bank of Tokyo Mitsubishi UFJ in New York. Signs of growth could be seen in retail data, showing that retail sales are growing (albeit at a reduced rate than the past few months) with an overall gain of 0.1 percent. Lower gasoline prices may boost consumer spending by freeing up household incomes for discretionary spending. The core Consumer Price Index, the inflation index most used by the Federal Reserve, rose 0.2 percent, which reflects an annualized rise in prices of 6 percent. With all the positive signs the Federal Reserve is still very cautious. The FOMC policy-makers basically “indicated that additional monetary policy accommodation could be necessary if the economic recovery lost momentum or the downside risks to the forecast became great enough,” according to the minutes. A couple of risk indicators are Europe’s debt crisis and failure of American lawmakers to agree on a budget. Roberto Perli said, “It is easy to see how downside risks to the forecasts could become large because you have Europe, which could hit in the near term, and you have a U.S. fiscal cliff as we approach the end of the year.”

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